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Oil firms locked into high-cost rig deals

CHEVRON Corp, BP Plc and other oil producers are locked into drilling offshore wells that cost as much as US$200 million each because of rig contracts that were signed when crude was soaring above US$140 a barrel.

Even as energy companies slash billions of dollars in spending to cope with the lowest prices in five years, deep-sea exploration continues unabated because canceling rig contracts would cost as much as finishing the projects, said Candida Scott, a senior director at Cambridge Energy Research Associates who tracks oil-development costs.

Demand for rigs that can fetch more than US$600,000 a day to rent hasn't diminished amid the US$105-a-barrel tumble in crude from a July record, said Gregory Cauthen, chief financial officer at Transocean Ltd, the world's largest offshore driller. Exxon Mobil Corp and other producers use the vessels to search for crude in 50 million-year-old rock formations 9.7 kilometers beneath the Gulf of Mexico and the Atlantic Ocean.

"We haven't seen any huge cancellation of rigs simply because the day rates that they locked in were so large," Scott said in a Bloomberg News interview from Houston. "I would have thought it is painful" to terminate a rig lease.

Chevron, which last week discovered a prospect in the Gulf of Mexico called Buckskin that may hold 500 million barrels of oil, has no plans to idle any deepwater rigs, said Kurt Glaubitz, a spokesman for the company.

"We're going to proceed with moving our vast queue of deepwater projects forward," Glaubitz said. Chevron has drilling projects under way off the coasts of Scotland, Brazil and Thailand.


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